Notice 2014-55: Expansion of Mid-Year Election Change Rules for Cafeteria Plans

Many employers permit employees to pay for employer-sponsored health coverage on a pretax basis under the Internal Revenue Code section 125 (cafeteria) plans. These plans generally require employees to make an irrevocable election to participate in the plan before the beginning of the health coverage period. Section 125 cafeteria plans typically require participants to make binding elections for an entire plan year. Health insurance coverage elections currently made under a cafeteria plan may not be revoked or changed during a plan year unless there is a change in status or another special enrollment event which permits a mid-year election change under the cafeteria plan rules. The Internal Revenue Service (IRS) rules typically do not allow mid-year changes to cafeteria plan elections, unless the employer adopts special changes in status rules and incorporates those rules in a written cafeteria plan document.

On September 18, 2014 the IRS issued Notice 2014-55, which expressly permits cafeteria plans to allow election changes mid-year when two additional circumstances arise. The first circumstances involves changes due to reduction in hours and the second circumstance involves changes due to marketplace enrollment.

These two new election events are permitted but are not required. Employers may adopt one or both of the new exceptions for mid-year election changes by amending their current cafeteria plans. For convenience, the IRS is allowing employers to amend their plans for the 2014 plan year by adopting the amendment at any time on or before the last day of the plan year which begins in 2015. Although the employer has extra time to adopt the formal amendment, the employer must take the following steps before allowing the exceptions:

  • Operate the cafeteria plan in accordance with the guidance outlined in the IRS Notice 2014-55; and
  • Notify all plan participants of the changes.

If you would like to receive additional information regarding the new IRS guidelines and amending your Section 125 cafeteria plans, please contact Creative Business Solutions. We would be pleased to assist you with all of your compliance needs.

For a full version of this article, please contact Creative Business Solutions.

Sources:, "New IRS guidance many require amendments to section 125 ("cafeteria") plans.", "IRS Expands Midyear Election Change Rules for Section 125 Plans." "IRS makes cafeteria plan exceptions for access to ACA Marketplace."

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